Freddie Mac, the US mortgage giant, yesterday admitted that it is so overwhelmed by its liabilities that without government backing, it would no longer be a viable business. The company said that it had lost $13.7 billion (£9.2 billion) in the third quarter of the year and begged for $13.8 billion from the US Treasury in rescue funds.

The plea for the multibillion-dollar cash injection came just days after Fannie Mae reported a record $29 billion loss for the period and gave warning that it was haemorrhaging cash so rapidly, it might need federal funds by the end of the year to survive.

The US Treasury has been overwhelmed by requests for federal aid in the past few weeks. In addition to setting up a $700 billion bailout fund to take equity stakes in troubled banks, the Treasury is being pressed by the car industry for a cash bailout. Yesterday, Neel Kashkari, the Assistant Treasury Secretary, said that he was under pressure to consider ways of using the $700 billion bailout to stem a surge in foreclosures across the US.

The Freddie Mac request for funds would see the drawing down of part of the $100 billion in emergency reserves that were committed by the Treasury in September.

Freddie Mac’s problems during the third quarter fell into two categories – the continuing real-estate slump, which has been accompanied by a sharp increase in mortgage borrowers defaulting on repayments, and a tax-related charge. The company had to admit that it cannot use tax credits listed on its balance sheet as assets, because it has not generated enough taxable income.

Freddie Mac and Fannie Mae were taken under federal control in September. Between them, the two mortgage companies guarantee about half of all home loans in America. Washington took the two groups under state control after they gave warning that the rise in the number of mortgage defaults could wipe out their capital. Under the bailout’s terms, the Treasury has a right to seize 79.9 per cent stakes in both for a nominal sum. Yesterday, Freddie’s shares fell 6 cents to 67c and Fannie’s shares fell 8c to 54c. Since the US Government took control, the two groups’ shares have fallen more than 90 per cent.

In a fresh sign that the Bush Administration’s final weeks are being dictated by the incoming Obama team, the Federal Deposit Insurance Corporation (FDIC) proposed yesterday to use $24 billion in government funding to help 1.5 million American households to avoid foreclosure. The source of the money, however, is in dispute. FDIC officials want to use part of the $700 billion banking bailout, but the Treasury is opposed to the idea.

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